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My_question_is: Applicable to both US and Canada
Subject: RRSP: leave or pull
Expert: taxman at centa.com
Date: Sunday December 12, 2004
Time: 04:17 AM -0800
QUESTION:
I have several RRSP accounts.
I hold a green card and have resided in the US for 4 years. My only travel
to Canada is vacation, 2 weeks per year.
What should I do with the RRSPs?
--------------------------------------------------
david ingram replies:
I think that having your Canadian RRSP account is likely a good financial
move if they hold significant monies in them. I f youyou are talking about
$12,000, cash them in and pay Canada the 25% tax and do something in the US
with the money, You could put it into an IRA for instance.
However, for the last four years you have likely done significantly better
leaving the money in
Canada. I am one of those who thinks that the Canadian Dollar will continue
to do well but I also think we will have a business slow down because of
that.
You must also report the existence of the accounts on form TD F 90-22.1 at:
http://www.irs.gov/pub/irs-pdf/f9022-1.pdf
Failure to fill in form TD F 90-22.1 for each Canadian financial account
you have can incur penalties of up to five years in jail PLUS $500,000 per
account.
In the meantime, you have to report the internal earnings on your RRSP's to
the US government under the following rules.
I would be glad to look after this if you need help.
For 2004, the new form 8891 is available at:
http://www.irs.gov/pub/irs-dft/d8891.pdf
n the meantime, you have to report the internal earnings on your RRSP's to
the US government under the following rules.
In 2001, 2002 and 2003 (and 2004) you should have reported any internal
earning of your RRSP by following the instructions in REV-Proc 2003-75.
RRSP and RRIF Information Reporting
2003 IRB LEXIS 474; 2003-50 I.R.B. 1204; Notice 2003-75
December 15, 2003
[*1]
SECTION 1. BACKGROUND.
Notice 2003-25, 2003-18 I.R.B. 855, and Notice 2003-57, 2003-34 I.R.B. 397,
provided guidance to taxpayers regarding their 2002 taxable year information
reporting obligations with respect to Canadian registered retirement savings
plans ("RRSPs") and registered retirement income funds ("RRIFs"). These
Notices stated that Treasury and the IRS intended to develop an alternative,
simplified reporting regime for these Canadian retirement plans for future
taxable years.
This notice describes the new simplified reporting regime that Treasury and
the IRS have developed for taxpayers who hold interests in RRSPs and RRIFs.
The new reporting regime, which is effective for taxable years beginning
after December 31, 2002, is in lieu of the filing obligations under section
6048 (Form 3520 (Annual Return to Report Transactions with Foreign Trusts
and Receipt of Certain Foreign Gifts) and Form 3520-A (Annual Information
Return of Foreign Trust with a U.S. Owner)) that otherwise apply to U.S.
citizens and resident aliens who hold interests in RRSPs and RRIFs and to
the custodians of such plans. The new [*2] simplified reporting regime is
designed to permit taxpayers to meet their reporting obligations by using
information that is readily available to them.
SECTION 2. NEW REPORTING REGIME.
.01. New Form. Under the authority of section 6001 of the Internal Revenue
Code, Treasury and the IRS are designing a new form that a U.S. citizen or
resident alien who holds an interest in an RRSP or RRIF must complete and
attach to his or her Form 1040. The new form also will coordinate the
reporting rules with the procedure set forth in section 4 of Revenue
Procedure 2002-23, 2002-1 C.B. 744, for making the election under Article
XVIII(7) of the U.S.-Canada income tax convention to defer U.S. income
taxation of income accrued in the RRSP or RRIF.
.02. Interim Reporting Rules for Beneficiaries Making the Election to Defer
U.S. Income Taxation on Income of an RRSP or RRIF. Until the form referred
to in section 2.01 of this notice is available, any U.S. citizen or resident
alien who is a beneficiary (as defined in section 2.06 of this notice) of an
RRSP or RRIF and who has made the election described in section 4 of Revenue
Procedure 2002-23 [*3] with respect to the RRSP or RRIF, or who is making
such election effective for the 2003 taxable year and subsequent taxable
years, must
(i) attach a copy of each such election to his or her Form 1040;
(ii) indicate the balance in each RRSP or RRIF at the end of the taxable
year either on the copy of the election or by attaching a copy of a
statement issued by the custodian of the RRSP or RRIF; and
(iii) comply with section 2.05 of this notice if he or she has received any
distributions during the taxable year from such RRSP or RRIF.
.03. Interim Reporting Rules for Beneficiaries Not Making the Election to
Defer U.S. Income Taxation on Income of an RRSP or RRIF. Until the form
referred to in section 2.01 of this notice is available, any U.S. citizen or
resident alien who is a beneficiary (as defined in section 2.06 of this
notice) of an RRSP or RRIF and who has not made the election described in
section 4 of Revenue Procedure 2002-23 with respect to the RRSP or RRIF, and
who is not making such election for the 2003 taxable year, must attach a
statement to his or her Form 1040 that includes the following information:
(i) The caption [*4] "CANADIAN RRSP" or "CANADIAN RRIF," whichever is
applicable;
(ii) The taxpayer's name and taxpayer identification number;
(iii) The taxpayer's address;
(iv) The name and address of the custodian of the RRSP or RRIF and the plan
account number, if any;
(v) The amount of contributions to the RRSP or RRIF during the taxable year;
(vi) The undistributed earnings of the RRSP or RRIF during the taxable year
in each of the following categories: interest, dividends, capital gains, and
other;
(vii) The total amount of distributions received from the RRSP or RRIF
during the taxable year; and
(viii) The balance in the RRSP or RRIF at the end of the taxable year.
The taxpayer must provide a separate statement for each RRSP or RRIF of
which he or she is a beneficiary. In addition to attaching the statement
described in this section 2.03 to his or her Form 1040, the taxpayer must
report the undistributed earnings for that taxable year of all such RRSPs
and RRIFs on Schedule B (Interest and Ordinary Dividends) or D (Capital
Gains and Losses), as appropriate, and on line 8a, 9, 13, or 21 of the Form
1040. The taxpayer must also comply with section 2.05 of this notice if the
taxpayer has received [*5] any distributions during the taxable year from
such RRSP or RRIF.
.04. Interim Reporting Rules for Annuitants of RRSPs and RRIFs. Until the
form referred to in section 2.01 of this notice is available, if a U.S.
citizen or resident alien is an annuitant (as defined in section 2.06 of
this notice) under an RRSP or RRIF that has no beneficiary (as defined in
section 2.06 of this notice), and the annuitant receives a distribution from
the RRSP or RRIF, the annuitant must in the year of distribution attach a
statement to his or her Form 1040 that includes the following information:
(i) The caption "ANNUITANT UNDER CANADIAN RRSP' or "ANNUITANT UNDER CANADIAN
RRIF," whichever is applicable;
(ii) The annuitant's name and taxpayer identification number;
(iii) The annuitant's address;
(iv) The name and address of the custodian of the RRSP or RRIF and the plan
account number, if any;
(v) The total amount of distributions received from the RRSP or RRIF during
the taxable year; and
(vi) The balance in the RRSP or RRIF at the end of the taxable year.
The annuitant must provide a separate statement for each such RRSP or RRIF
from which he or she has received a distribution during the taxable [*6]
year. The annuitant must comply with section 2.05 of this notice with
respect to such distributions.
.05. Distributions. A U.S. citizen or resident alien who has received any
distributions during the taxable year from an RRSP or RRIF must report the
total amount of distributions received during the taxable year from all such
RRSPs and RRIFs on line 16a of the Form 1040 and the taxable amount of all
such distributions (as determined under section 72) on line 16b of the Form
1040.
.06. Definition of Beneficiary and Annuitant. For purposes of the new
simplified reporting regime described in this notice, a beneficiary of an
RRSP or RRIF is an individual who is subject to current U.S. income taxation
on income accrued in the RRSP or RRIF or would be subject to such taxation
had the individual not made the election under Article XVIII(7) of the
U.S.-Canada income tax convention to defer U.S. income taxation of income
accrued in the RRSP or RRIF. For these purposes, an annuitant of an RRSP or
RRIF is an individual who is designated pursuant to the RRSP or RRIF as an
annuitant.
.07. Record Retention. Taxpayers must retain supporting documentation
relating to information required [*7] by the new reporting regime,
including Canadian Forms T4RSP, T4RIF, or NR4, and periodic or annual
statements issued by the custodian of the RRSP or RRIF.
SECTION 3. SECTIONS 6048 AND 6677 ARE NOT APPLICABLE
The new simplified reporting regime, instituted under the authority of
section 6001, provides the information needed for tax compliance purposes.
Therefore, pursuant to section 6048(d)(4), no reporting will be required
under section 6048 with respect to RRSPs and RRIFs that have beneficiaries
or annuitants who are subject to the new simplified reporting regime.
Accordingly, the associated penalties described in section 6677 do not apply
to such RRSPs and RRIFs and their beneficiaries or annuitants. A beneficiary
or annuitant of an RRSP or RRIF may, however, be subject to other penalties.
SECTION 4. EFFECT ON OTHER DOCUMENTS.
Notice 2003-25, Notice 2003-57, and section II.E of Notice 97-34 (pertaining
to reporting for certain transfers to RRSPs), 1997-1 C.B. 422, are
superseded to the extent inconsistent with this notice.
SECTION 5. EFFECTIVE DATE.
This notice is effective for taxable years beginning after December 31,
2002.
SECTION 6. PAPERWORK REDUCTION [*8] ACT.
The collection of information contained in this notice has been reviewed and
approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1865.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of information
displays a valid OMB control number.
The collection of information in this notice is in section 2. This
information will be used to compute and collect the right amount of tax. The
likely respondents are individuals.
The estimated total annual reporting burden under the new simplified
reporting regime for taxpayers who hold interests in RRSPs and RRIFs is
1,500,000 hours. The estimated annual burden per respondent varies from 0.5
hour to 5 hours, depending on individual circumstances, with an estimated
average of 2 hours. The estimated number of respondents is 750,000.
The estimated annual frequency of responses is once per respondent per plan.
The new simplified reporting regime substantially reduces the reporting
burden of taxpayers who hold interests in RRSPs and RRIFs. Under [*9] the
prior regime, the average estimated reporting burden was more than 50 hours
per Form 3520 (more than 100 hours per respondent). In addition, the new
simplified reporting regime eliminates the requirement to file Form 3520-A,
reducing the burden of a custodian by more than 40 hours per RRSP or RRIF.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any
internal revenue law. Generally, tax returns and tax return information are
confidential, as required by 26 U.S.C. 6103.
SECTION 7. DRAFTING INFORMATION.
The principal author of this notice is Willard W. Yates of the Office of
Associate Chief Counsel (International). For further information regarding
this notice contact Willard W. Yates on (202) 622-3880 (not a toll-free
call).
Send To: YATES, WILLARD
IRS CHIEF COUNSEL
1111 CONSTITUTION AVE NW RM 2116IR
WASHINGTON, DISTRICT OF COLUMBIA 20224-0002
==========================
REV-PROC 2002-23
rev proc 2002-23
Send to: YATES, WILLARD
IRS CHIEF COUNSEL
1111 CONSTITUTION AVE NW RM 2116IR
WASHINGTON, DISTRICT OF COLUMBIA 20224-0002
For 2004, you will fill in the new form 8891
http://www.irs.gov/pub/irs-dft/d8891.pdf which should have a final version
by the end of the year. In the meantime, you can look at the draft version
above.
Then you will have to figure out what part of you r withdrawal was principal
and what part was new earnings and report that par ton your US 1040 schedule
B (if interest and dividends) or D if it was capital gains. You will claim
credit for the 25% tax withheld on (on the earnings portion of the RRSP) US
form 1116.
With regard to the telecommuting, none of the income will be taxable in
Canada unless you actually come up to Canada to do some of the work. In
that case you will have to pro-rate it.
You "will" have to report it on a schedule C on your US return and will have
to pay US social Security on it as well as Federal and state income tax.
As long as the work is done for a Canadian company, you are okay but do NOT
take on the same job for a US branch office unless you get another TN for
that office. (I have one client who had eight TN visas for eight different
companies).
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier
Partners and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS
YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
www.600AM.com
Local phone calls to (604) 280-0600 - Long distance calls to 1-866-778-0600.
Old shows are archived at the site.
This from ask an income tax immigration planning and bankruptcy expert
consultant guru or preparer from www.centa.com or www.jurock.com or
www.featureweb.com. Canadian David Ingram deals daily with tax returns
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Disclaimer: This question has been answered
without detailed information or consultation and
is to be regarded only as general comment.
Nothing in this message is or should be construed
as advice in any particular circumstances. No contract
exists between the reader & the author and any and all
non-contractual duties are expressly denied. All readers should obtain
formal advice from a competent financial, or real estate planner or advisor
& appropriately qualified legal practitioner, tax or immigration specialist
in connection with personal or business affairs such as at www.centa.com.
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